When the Fed makes an open-market sale, it:
A)increases the money multiplier (m).
B)increases the currency-deposit ratio
C)(cr). increases the monetary base (B).
D)decreases the monetary base (B).

Question

Quizplus · Accepted Answer

An open-market sale by the Fed involves selling government securities to banks in exchange for cash. This decreases the amount of reserves held by banks and thus decreases the monetary base. Therefore, the correct choice is D.

When the Fed Makes an Open-Market Sale, It